Bolsonaro Win Giving Rise To Market Optimism In Brazil

Jair Bolsonaro, who stems from the Social Liberal Party, has been elected President of Brazil. He garnered 55.1% of the valid vote, defeating Fernando Haddad of the leftist Partido dos Trabalhadores (PT), who received 44.9%, in the second round vote on October 28. Bolsonaro's election victory was in line with our view (see 'Brazil Elections: Bolsonaro Most Likely To Win In Close Election', September 12), and reflects his rise on 'law and order' issues in response to deteriorating security, anti-PT sentiment, and the rising political mobilisation of evangelicals and rural voters in western and southern states.

Stocks Pushing Higher

Brazil - Bovespa Equity Index

Source: Bloomberg, Fitch Solutions

Financial markets look likely to extend gains over the coming days. Markets have risen as Bolsonaro's odds of election climbed because he has appointed market-friendly economic advisors and pledged support for pension reform and privatisations, in contrast to policy reversals that Haddad and the PT largely campaigned on. Indeed, the Brazilian stock market was up by about 2% on Friday in anticipation of the vote. With confidence growing, we believe that investment will likely rise and economic growth will broadly pick up heading into 2019.

Bolsonaro Wins By A Large Margin

Brazil - Second Round Presidential Election Results, % Of Total

Source: Fitch Solutions

However, Bolsonaro's ability to enact anticipated reforms will depend on him putting together an effective cabinet and establishing a working relationship with the legislature. Signs of differences with his economic advisors appeared several times during the campaign, and he will likely face a significant challenge in securing a durable legislative coalition, given a fractious Congress and his own party's relatively small position.

Over the coming weeks, we will be watching his administration's development closely for signs of policy priorities and effectiveness. We caution that market sentiment toward Brazil could deteriorate over the coming months if, as we expect, Bolsonaro's ability to deliver reforms underperforms market expectations.